Any discussion of how well Americans are
doing should begin with an acknowledgement of something we often
forget: Americans have a higher standard of living today than
ever.

Technological advancement is one reason,
but so is economic prosperity. In 1970, 80% of all American households
had a car. Today 92% do. In 1970, 34% of Americans had color TV.
Today 98% do. 44% of households had a clothes dryer in 1970; today
it is 75%. In constant 1997 dollars, the median household net
worth was $27,938; in 1997 it was $59,398.

But few dispute that many Americans would
benefit from investing more. So how can we encourage Americans
to invest?

One way is by overhauling our Social Security
system.

There are several problems with our current
system. One is demographic: fertility rates are low while Americans
are living longer than the government expected when Social Security
was adopted in 1935.

Another is that because Social Security
exists, many people don't bother to save for retirement.

A third is that our tax dollars paid into
Social Security don't work for us by gaining in value in the years
before we retire, as our private investments do.

One way to cure these problems while giving
typical Americans the benefits of stock market investing is to
change Social Security so part of our Social Security money creates
private, individually-controlled savings accounts for each worker.
This would ease Social Security's long-term cash crunch because
workers' payments would earn dividends and increase in value over
their working years.

This system also would give the benefits
of stock market investing to Americans who do not currently invest.
A new Cato Institute book, "A New Deal for Social Security"
by Peter Ferrara and Michael Tanner,1 shows how typical Americans
would benefit from private Social Security accounts. Noting that
the stock market's average real return to investors was 7.56%
from 1926-96, the authors point out that if a two-earner American
family making the average income for males and females invested
their Social Security taxes in the stock market and received an
average 6% rate of return during their working lives, they would
retire with a $1.6 million trust fund. The family with an average
full-time worker and a non-working spouse would retire with nearly
$750,000.

Britain, Australia, Chile, Hungary and
many other nations have adopted some form of this system with
excellent results. In Chile workers have the option of putting
about half of what we call Social Security taxes into private
accounts. As a result, workers are now receiving benefits 200%
higher than under the old system. What's more, the average Chilean
has more savings than the average American, even though the average
American makes seven times more than the average Chilean.

But more can be done to increase Americans'
saving opportunities. Cutting taxes would increase the amount
of money Americans have to invest. The Tax Foundation says that
in 1957 a two-earner American family spent a quarter of their
budget in taxes, much less than it spent for food and housing.
In 1998, a typical two-earner family spent nearly 40% of its income
on taxes - more than it spent on food, clothing and housing combined.2

Any plan to spur investing by Americans
should remember this simple principle: money paid in taxes can't
be saved.

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Amy Ridenour is president of
The National Center for Public Policy Research. Comments may be
sent to [email protected].